Transfer pricing and decentralized dynamic lot-sizing in multistage, multiproduct production processes

Transfer pricing and decentralized dynamic lot-sizing in multistage, multiproduct production processes

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Article ID: iaor20001946
Country: Netherlands
Volume: 116
Issue: 2
Start Page Number: 319
End Page Number: 330
Publication Date: Jul 1999
Journal: European Journal of Operational Research
Authors:
Keywords: programming: mathematical
Abstract:

This paper presents the use of a transfer pricing system to coordinate business units in a Wagner–Whitin type model for a decentralized lot-sizing problem in a dynamic multistage, multiproduct environment. The paper includes two major proofs: (1) a transfer pricing system enabling optimal decentralized lot-sizing is characterized. The transfer pricing system can be interpreted as a generalization of the reciprocal method or step-down allocation method in cost location accounting; and (2) based on a Wagner–Whitin type theorem and the Kakutani fixed point theorem, it is shown that such a transfer pricing system exists.

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